Tips for Transitioning from Two Incomes to One
By: Alicia Nelson-Bell, Extension Finance Intern
August 31, 2021
Many families in the United States find themselves in a position of transitioning from two incomes to one. There are a couple main reasons why families make this transition, some are voluntary such as having kids and choosing to stay home with them and other reasons unfortunately are unforeseen such as getting laid off or furloughed or one income earner suffering a disability. Regardless of the reason behind a family going through this transition, there are a variety of effects it can have on the family that need to be considered either in preparation for the transition or shortly after to help the family continue successfully financially.
- Maintain Open Communication- This is crucial to maintain between you and your partner and with the kids. Open communication should be maintained about changes that will happen to your family lifestyle, the why behind the switch and overall expectations, including if the switch from two incomes to one is planned to be temporary or long-term. Open communication can help make transitioning not only more successful, but also less stressful and contentious. Communicate about the things that are hard, the things that are successful and the things that aren’t going as well in the transition and evaluate what can be done to help with those.
- Prioritize Needs vs Wants and be willing to Make Sacrifices- It is important that your family sorts out what expenses in the budget are wants that can potentially be decreased or done away with if the current expense doesn’t fit in the new budget, and what expenses are needs that you need to make sure are covered every single month no matter what. Make sure to prioritize shelter, utilities, transportation and food, when not everything in your old budget can be covered. Keep in mind the why behind switching to one income, if it was voluntary and what your family is gaining by doing so. This can help make sacrifices feel more worthwhile if your family focuses on the positives rather than on how hard the sacrifices may seem.
- Prepare a Budget Based on the Remaining Income- Practice living this budget and see what behavior and lifestyle changes will need to be made by all the members of the family to sustain the one income budget. If you still have time until you go down to one income, put the other income towards savings (emergency or long term) or towards paying down debt. If you’re able to practice the new budget together before you lose the other income, this can help you see what life will be like and what further adjustments may need to be made while you still have a buffer. You may be surprised how many areas of your budget will change, hopefully positively.
- Pay Off or Down as much Debt as Possible- If the switch from two incomes to one is anticipated, many people find it helpful to pay off as much debt as possible while still having two incomes so that more money is freed up to go towards needs and other priorities when there is only the one income to work with. Focus on getting the costliest, highest interest debts paid off.
- Review your Tax Withholdings- Having a lower total household income may put you in a lower tax bracket and mean that it would be wise to adjust your withholdings. Also, educate yourself on any tax credits you may now qualify for that you hadn’t previously.
- Have a plan for health insurance and other benefits such as retirement that may be lost when the one income is gone. It is important to still have a plan to be contributing to retirement funds through IRAs and Spousal IRAs if an employer is no longer doing that for you, especially if the switch down to one income is planned to be long term. If you will be losing health insurance benefits with the one partner leaving the workforce, you may consider researching what plans your family would qualify for in the marketplace. Depending on the income level you will be put at with the one income you may qualify for tax credits that offset some of the cost.
- Coupon and Use the Grocery Ads as Savings Tools- So much money can be saved by using the weekly ads and coupons that come in the mail as money saving, planning tools rather than throwing them away. As you transition from two incomes to one, you may find that it isn’t feasible to be spending the same amount of money on variable expenses. Take some time each week when the ads come and use them to plan your meals around the items on sale. This can help save money by buying items at lower prices, going shopping with a list and having a good idea of how much everything will cost. If you choose to still go out to eat to treat yourselves, many restaurants have coupons or deals that can really help the savings add up to go another time in the month or allow you to have funds to pay for something else.
- Make Eating Out a Treat rather than a Routine- Following along with the previous tip, you may need to reevaluate the habits you have formed and see which you can adjust to save money. If you find that eating out or stopping for your favorite treat has become routine for you, this may be something that could instead be used to treat yourself on special occasions. This is one way of applying the Step-Down-Principle that can help free up money without cutting things you enjoy out completely. The other way of applying this principle besides decreasing frequency is finding a less expensive way of enjoying it, such as going to a less expensive restaurant.
- Build a Healthy Emergency Fund- It is always important to have a good emergency fund to help when “life happens”, but it’s even more important to have this savings when you only have one income to cover the emergencies that come up. Strive to have 3-6 months of expenses saved in your emergency fund, so you are prepared to handle pretty much any emergency including the remaining income earner losing their job, without having to go into debt.
While the transition from two incomes down to one can have many different effects on families and be difficult whether it is a voluntary transition or one that comes through unforeseen circumstances, there are things that families can do to help make the transition less stressful and trying on the family. Hopefully if you find yourself making this transition currently or are planning on it happening in the future, applying some of these tips can help your family achieve financial success during and after this transition. For more information and resources about budgeting through transitions check out the self-paced Powerpay Money Master online course or free webinars taught by the Empowering Financial Wellness team, which can be found at www.finance.usu.edu/efw .
- Em At Home, Tips for Living on One Income video, YouTube, Mar 24, 2020, Retrieved July 9, 2021 https://www.youtube.com/watch?v=lLKvE5htHR4&t=34s
- Kimberly, StyleMom, Money Saving Tips, 2 Incomes Down to 1, How I Budget video, YouTube, July 19, 2017 Retrieved July 9, 2021 https://www.youtube.com/watch?v=GjWE-JmGILk&t=10s
- Laponsie, Maryalene 6 Steps for Going From 2 Incomes to 1 ,US News and World Report, Money. March 9, 2017, Retrieved July 12, 2021 www.Money.usnews.com